If, after a labour dispute with one of your employees or ex-employees, you, as an employer, are ordered by the Council for Conciliation Mediation and Arbitration (CCMA) to make a payment to the individual involved, it is important that you are aware of your obligations to the South African Revenue Services (SARS) in relation to the payment.
If you are not aware of those obligations, you could find yourself in the unfortunate position of having paid the full amount to the employee, only to have the SARS approaches you to pay it the amount that should have been paid to it, in the form of employees' tax, as a consequence of the payment.
The important thing to remember is to check what the tax requirements are before you make the payment.
In bearing this in mind, you need to be aware that the tax legislation requires every employer who pays, or becomes liable to pay, any amount by way of remuneration to any employee, to deduct employees' tax from the payment.
Thus, it is mandatory to deduct employees' tax, unless the Commissioner for Inland Revenue has directed otherwise. That is, it is possible to apply to SARS for a directive to the effect that you need not deduct employees' tax, or that the amount that you must deduct is less than the amounts you calculate, with reference to the employees' tax tables.
The question that arises is: Does the amount you are paying constitute remuneration payable to an employee?
Remuneration is a very broad term. To illustrate this: it includes any amount of income paid or payable to any person by way of any salary, leave pay, allowance, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise, and whether or not in respect of services rendered.
It also specifically includes any amount received or accrued by the employee in respect of the termination, loss, repudiation, cancellation, or variation of any employment. (It excludes amounts paid to a person in the course of their trade carried on independently, as defined.)
An employee is defined as, amongst other things, a person to whom remuneration accrues.
It is clear then that, if the CCMA makes a ruling that you must pay an amount to your ex employee, which usually represents a multiple of months of the person's salary, to compensate them for the fact that they have been "unfairly dismissed" for example, the amount will be an amount you must pay to the person for the cancellation or variation of their employment. That is, remuneration as defined.
You are therefore required to deduct employees' tax from the payment, and the tax legislation requires that you obtain a directive from SARS advising as to the amount of tax that must be deducted.
You may apply for such a directive on the IRP3(a) form. You must also reflect the payment on the employees' tax certificate specifically as an arbitration award.
If you fail to deduct the employees' tax, not only may you be required to pay it (even if the chances of you getting it back from the employee are small), you may also be charged a penalty representing 10 percent of the underpaid tax, as you are paying it late, and also interest on the late payment, now at 16 percent.
The next question is: Can you deduct the payment you make for tax purposes, in your business's tax computation? Since such awards are considered to be inevitable events that can arise in the course of business, it is accepted that you, as the employer, may deduct the amount you have to pay to the employee in your tax computation. You may not, however, deduct the penalties and interest if you don't pay the amount to SARS.
Best get it right first time!!!